T.D. Canada Trust, Montreal

Conservatory Measures

What is a conservatory measure?

The Superintendent of Bankruptcy puts in place conservatory measures when a bankruptcy or insolvency estate needs protection. It might be in cases of Licensed Insolvency Trustee (LIT) malfeasance or if serious wrongdoing on the part of a LIT puts estate files at risk. Conservatory measures may also be put in place if a LIT becomes ill or dies without a valid succession agreement. Finally, conservatory measures may be put in place if a LIT, for whatever reason, has allowed the administration of his or her practice to become substandard.

Canada

In the matter of:
Henry Sztern & Associés inc.
and
Henry Sztern


Directions for Conservatory Measures
(section 14.03 of the Bankruptcy and Insolvency Act)


Whereas the Bankruptcy and Insolvency Act (Act) provides the Superintendent with the general power to supervise the administration of all estates and matters to which the Act applies;

Whereas the Superintendent of Bankruptcy may and must, for the protection of the assets of an estate, exercise the powers referred to in subsection 14.03(1) of the Act in the circumstances stipulated in subsection 14.03(2) of the Act;

Whereas the Act provides the Superintendent with the power to examine all books, records, and documents including estate bank accounts at any reasonable time;

Whereas the Superintendent of Bankruptcy implemented the Monitoring Program to ensure uniform assessment of estate administration and the Program requires the senior bankruptcy analyst to visit the trustee's office to examine and review a sampling of estate files administered by the trustee including the examination of estate bank accounts;

Whereas on February 19, 2003 at the office of the trustee, a Monitoring Program visit was scheduled for the period of March 18 to March 20, 2003 and Mr. Gilles-Normand Lavallée, senior bankruptcy analyst, agreed to the dates suggested by Mr. Sztern;

Whereas at the meeting of February 19, 2003, also attended by Mr. Gerry Barberio, bankruptcy analyst, explanations and documents were requested from the trustee in order to review and analyse recent complaints received by the Montreal Division office of the Superintendent of Bankruptcy from creditors in estate files administered by Mr. Sztern;

Whereas during the course of their review the analysts identified numerous deficiencies, specifically, the trustee was not making his dividend distributions although sufficient funds were apparently in the trust account, the dividend distributions were not made according to the terms of the proposals, dividend cheques were taking too long to clear the bank accounts and the dividend posted dates in the cash ledgers did not correspond with the dates the cheques were clearing the bank accounts;

Whereas in certain consumer proposal files, the trustee made cheque disbursements from bank accounts other than the trust account;

Whereas in certain consumer proposals, the trustee illegally withdrew amount of moneys;

Whereas the Montreal Division office of the Superintendent of Bankruptcy has yet to receive satisfactory explanations and all of the requested documentation from the meeting of February 19, 2003;

Whereas Mr. Sztern is the only trustee in the corporate trustee firm of Henry Sztern & Associés Inc. which presently has 1,334 open estate files and he declared to the official receiver that he does not have the staff nor the resources to properly administer them on a timely basis;

Whereas the trustee confirms to the official receiver that he personally interviewed all the individual debtors, states that he performed the assessment evaluations as required by Directive 6R and signed the certificate evaluations indicating he performed the assessments, however five recent bankrupts examined by the official receiver under section 161 of the Act stated they had not seen nor met the trustee;

Whereas during the course of the analysis the bankruptcy analysts encountered a lack of internal controls in the administration of the estates and contrary to the Act disbursements were made from bank accounts other than the estate trust account rendering the audit trail difficult for these transactions;

Whereas on March 18, 2003, the day before the scheduled Monitoring Program visit, the trustee informs the official receiver that he is not able to attend;

Whereas on March 19, 2003, Mr. Gilles-Normand Lavallée and Mr. Gerry Barberio travelled to the trustee's office for the Monitoring Program and were denied access to the estate files by the trustee;

Whereas the delays, the lack of cooperation, the refusal to provide timely documentation, the refusal to provide access to the files, and by other subtle means of avoiding or postponing meetings with the official receiver, Mr. Sztern has prevented the bankruptcy analysts from carrying out their mandate under the provisions of the Monitoring Program;

Whereas after the OSB requested and obtained documents from the financial institution where the assets had been deposited, it appears that the trustee has produced altered bank statements for several files which show neither the actual balance in the account nor the transactions that have taken place;

Whereas in one file in particular, the trustee has produced a certificate of term deposit which, upon verification with the financial institution, was never issued in the name of the estate that was shown on the documents presented to the official receiver;

Whereas on April 3, 2003, for the above mentioned reasons and with a view to protecting the estates, the undersigned issued conservatory measures which enjoined the financial institution where, according to information given by the trustees, estate funds had been deposited, to no longer honour bills of exchange, transfers of funds, payments or otherwise, unless they be co-signed by a representative of the Office of the Superintendent of Bankruptcy;

Whereas these measures also enjoined the Official Receiver to stop appointing the trustees to new files and also enjoined a representative of Industry Canada to make a copy of the trustees' computerized accounting system;

Whereas subsequent to the issuance of these conservatory measures, the investigation concerning the trustees revealed that the trustees misled representatives of the Office of the Superintendent of Bankruptcy by making false statements and by knowingly providing incomplete, erroneous and false documents;

Whereas on April 9th 2003, the trustee met with representatives of the Office of the Superintendent of Bankruptcy and declared that he will no longer administer the estates files and agreed that the OSB appoint, by conservatory measures a guardian trustee to that effect;

Whereas the trustee Henry Sztern offered no explanations to the above mentioned allegations;

Whereas the Superintendent of Bankruptcy is pursuing its investigation into the trustees' conduct by virtue of subsection 5(3)e) of the Act;

Whereas the Superintendent of Bankruptcy has delegated to the Deputy Superintendent, Programs, Standards and Regulatory Affairs in accordance with subsection 14.01(2) of the Act, in certain situations mentioned in subsection 14.03(2), his powers as specified at subsection 14.03 (1) of the Act, copies of which delegation are attached along with copies of subsections 14.01(2) and 14.03(1) to (4) of the Act ;

Whereas subsections 14.03(1)b) and c) of the Act apply;

Therefore,

I, Alain Lafontaine, in my capacity as Deputy Superintendent, Programs, Standards, and Regulatory Affairs, direct: 

T.D. Canada Trust, branch located at 433, Chabanel Ouest, bureau 101, Montreal, Québec;

  1. to consider, upon reception of the present directions, H. H. Davis & Associates Inc. trustees, as agents of the Office of the Superintendent of Bankruptcy, to be the only authorized signatories for any and all operations on the funds credited to the estates of bankruptcies and proposals administered by Henry Sztern & Associates Inc. and Henry Sztern;
  2. to make no debit and / or payment and /or transfers on funds credited to the estates of bankruptcies and proposals administered by Henry Sztern & Associates Inc. and Henry Sztern, without having obtained the signature of Lynda Lalande or Herbert Davis or Paula Brooks from H. H. Davis & Associates Inc.;
  3. not to pay, out of these accounts, bills of exchange, cheques, bank drafts or other such instruments that may have been issued before the reception of these directions but which would be presented for payment after the receipt of these directions, without these cheques, bills of exchange or drafts or other instruments being co-signed by Lynda Lalande or Herbert Davis or Paula Brooks from H. H. Davis & Associates Inc.;
  4. to submit all statement of accounts, accepted cheques and/or other document and information having to do with the above mentioned estate accounts, to H. H. Davis & Associates Inc.;
  5. to provide, as soon as possible, the list of trust bank accounts of Henry Sztern & Associates Inc. and Henry Sztern to H. H. Davis & Associates Inc.;

These directions replace and revoke the ones issued to you on April 3th, 2003.

These directions take effect immediately and will stay in place until further notice or until a decision is rendered under section 14.01 of the Act;

In accordance with subsection 14.03(3) of the Act, these directions bind the addressee, who must comply with them;

In accordance with subsection 14.03(4) of the Act, a person who complies with the present directions is not liable for any act done by the person only to comply with them.

Signed, in the City of Ottawa, Ontario, April 14, 2003

Alain Lafontaine
Deputy Superintendent
Programs, Standards and Regulatory Affairs

This document has been reproduced as submitted by the delegate of the Superintendent of Bankruptcy.
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